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How To End Single Invoice Finance Misconceptions

Single Invoice Financecomes in two forms namely factoring and discounting. Both methods have become superstars in the world of finance and have been two of the most sought after among business owners and entrepreneurs alike. However despite their popularity and widespread use, a good number of misconceptions still continue to hunt them. That’s bound to end today as we lay down the facts from the fallacies with this list.

The Misconception – “It’s another form of debt.”

Of all the lies and misconceptions about single invoice finance, this is perhaps the most rampant. It’s not that surprising given that a good majority of financial options in the market fall under the category of credit. Just keep in mind that this one begs to differ as it is an asset transaction. It generates funds by virtue of advancing the value of an invoice, one that is yet to mature and yet to be paid at a future date. In the books, it appears as a decrease in trade receivables coupled by an increase in cash.

The Misconception – “It’s only for the established entities.”

Most small to medium scale enterprises, recovering entities and startup companies often shy out of trying to finance their endeavors with the help of financial providers thinking that their application will get rejected anyway. The good news is, single invoice finance is no debt thus it comes without interest and collateral. Even the smallest and youngest entrepreneurs can apply for it because it has no asset level requirements. This makes it faster to process too. Plus in terms of creditworthiness, providers need that of the customer’s to whom the invoice is attached to not the company’s.

The Misconception – “Receivable value is lost in the process.”

Let’s review the process. First, the provider gives the company an advance of the chosen invoice’s value even before the owing customer pays for it. The amount is equivalent to at least eighty percent and as much as ninety-five percent of the total value. The remainder shall only be released and forwarded to the company once the customer has paid in full which is decreased by a predetermined fee.

The Misconception – “It’s expensive.”

As previously mentioned, single invoice finance only involves a predetermined fee which is agreed by both parties at the onset. Moreover, since this is a onetime transaction the fee also happens once. There are no lengthy contracts and obligations involved.

SID, an acronym for Single Invoice Discounting, is a one-off transaction that involves the use of a particular and selected sales invoice to raise funds for commercial use. Many businesses make use of it given its numerous advantages, however, not everyone who does do it right. Today we shall discuss these blunders and hopefully help everyone avoid committing the said crimes.

But before we proceed, let’s get to know SID even more. Also known as Selective or Spot Invoice Discounting, it allows companies to advance the value of its sales invoice by up to a percentage majority of its value before the owing customer sends in payment. This happens almost instantaneously as many providers are able to release cash within twenty four hours at the least.

In such transaction, the company chooses the invoice and then uses it as collateral. The amount of the advance received shall depend on the value of the said invoice. The company then uses the funds as it pleases and then collects from the owing customer. Once collection is completed, the company has to repay the provider for the advance it has previously taken plus fees agreed upon at the onset of the transaction.

Now that we’ve got that covered, let’s proceed to the crimes committed against SID.

Mistake #1: Mistaking it for factoring. – Discounting and factoring are two distinct financing methods despite their very similar benefits. Factoring is a sale of the right to collect against the invoice with the collection burden shouldered by the provider and not the company.

Mistake #2: Contacting the wrong provider. – It is important to transact only with trusted SID companies to ensure that things go smooth and well. This necessitates ample research and going around to narrow down choices and then end up with the best.

Mistake #3: Failing to assess the invoice beforehand. – SID providers bank on customer instead of company creditworthiness. To cut the application time, make sure that you only use of credible and creditworthy customer sales invoices. This brings us to our next item.

Mistake #4: Don’t extend credit to everyone. – To make better value for your receivables, extend credit sales only to those who are capable of fulfilling their obligations. Screen your customers first before you allow them of deferred payment options. This benefits not only your Single Invoice Discounting transaction but your cash flows, receivables ageing and liquidity as a whole.